Industry News...

Sep 09, 2013

Canada’s banking regulator has been gathering detailed mortgage information from financial institutions, in what could be a precursor to changes in the rules for home loans.

The Office of the Superintendent of Financial Institutions (OSFI) has spent months considering a tightening of mortgage rules for lenders – a decision that’s being weighed as the housing market begins to pick up after a year-long slump. That slide began when Finance Minister Jim Flaherty tightened the rules for mortgage insurance in July 2012.

Policymakers in Ottawa, including OSFI head Julie Dickson, have been concerned consumers are taking on too much debt and that house prices have risen too much.

TD Canada Trust economists estimate that home prices are 8% above what they’re actually worth nationally. The average selling price of existing homes in July was 8.4% higher than a year earlier, driven by resurgence in the pricier markets of Vancouver and Toronto.

Years of ultra-low interest rates have spurred consumers to take on more mortgage debt than they may have otherwise. To rein the market in, Ottawa has tightened the rules around mortgage insurance four times since 2008 – Flaherty’s latest move cut the maximum amortization period for an insured home loan to 25 years from 30. Insurance is mandatory for homebuyers who have less than 20% of the purchase price of a house as a down payment.

The Bank of Canada is holding its main interest rate at 1%, where it has been since September 2010.

Economists widely expect the central bank to hold its trendsetting rate steady well into next year, so today’s announcement came as no surprise.

“The bank did precisely what was expected of them today: nothing,” BMO Capital Markets Chief Economist Doug Porter said in a note to investors. “If anything, the tone of the statement was slightly more dovish, noting the more moderate global backdrop, less certainty on the output gap and still relatively relaxed on the household debt front. The bottom line is that we are still looking at a very long period of inactivity by the bank, and may well be talking about four years of unchanged rates a year from now.”

That wait-and-see approach would appear to suit Bank of Canada governor Stephen Poloz just fine. He has been on the job since early June and shows no sign of breaking from the monetary policies of his predecessor, Mark Carney, who took up a new post this summer as head of the Bank of England.

Erosion in affordability didn’t hinder activity as home resales and housing starts have shown renewed vigour since the spring across the country, reversing part of the cooling that took place in the second half of 2012 and early 2013.

“Homebuyers seemed unfazed by the slight deterioration in affordability – we saw the market regain some momentum in the second quarter with home resales increasing 6.4%,” said Craig Wright, Senior VP and Chief Economist, RBC. “Resales should stabilize close to the recent not-too-hot, not-too-cold levels in the near-term, barring any further changes in housing policy by the federal government.”

The RBC housing affordability measure captures the proportion of pre-tax household income that would be needed to service the costs of owning a specified category of home at going market values (a rise in the measure represents deterioration in affordability).

During the second quarter of 2013, affordability measures at the national level rose for two of the three categories of homes tracked. RBC’s measure for the detached bungalow rose 0.3 percentage points and for the standard two-storey home rose 0.4 percentage points to 42.7% and 48.4%, respectively. The measure for the standard condominium was unchanged at 27.9%.

Any landlord who has been involved in the real estate rental business for more than a few years has likely come across a tenant disaster, or at least knows somebody who has. One of the most common comments we hear from prospective, current, and former landlords relates to the headaches caused by accidentally renting to a bad tenant.

The relationship between landlord and tenant is known to be rocky, at the very least, and disastrous or expensive in a worst-case situation. Bad tenants have left landlords with garbage to clean up after suddenly leaving a property, pet damage and repairs in suites clearly marked as not allowing pets, damage to property after massive parties, junk removal requirements after night-time move-outs and everything in between.

Horror stories are everywhere, and news travels fast: selecting the right tenants is the most important step in the real estate rental business. Landlords who can master this skill will succeed in the business, while the opposite is also true, unfortunately. Bad tenants are the number one reason for landlords leaving the industry and selling their properties in search of greener pastures.

Landlording is a risky business. Selecting a disreputable tenant who causes major damage to a unit can leave a landlord with a significant bill for clean-up and repairs, scare off other regularly paying tenants, and even label the landlord as inattentive or with the classic slumlord designation.

Click here to read how landlords can steer clear of bad tenants courtesy of the Globe and Mail.